US Stocks, Commodities Rally as Dollar, Bonds Drop on GDP
Oct. 29 (Bloomberg) -- U.S. stocks rallied, snapping afour-day losing streak for the Standard & Poor’s 500 Index,after the economy returned to growth following the worstcontraction in seven decades. Treasuries dropped and the dollarand yen weakened, while commodities rose.
Caterpillar Inc., Alcoa Inc. and American Express Co.jumped at least 2 percent after the Commerce Department saidgross domestic product grew at a 3.5 percent pace from Julythrough September after shrinking for four straight quarters.Motorola Inc., Procter & Gamble Co., Newmont Mining Corp. andKellogg Co. climbed on better-than-estimated earnings.
The S&P 500 increased 1.2 percent to 1,054.62 at 10:38 a.m.in New York. The Dow Jones Industrial Average added 82.75points, or 0.9 percent, to 9,845.44. The MSCI AC World Index, ameasure of developed and emerging markets, rose 0.9 percent asit gained for the first time in eight days. Five stocks advancedfor each that fell on the New York Stock Exchange.
“The stock rally is not over yet,” said Jeffrey Kleintop,who helps oversee about $247 billion as chief market strategistat LPL Financial in Boston. “The stock market can celebrate.This news is an important confidence boost, in particular toindividual investors.”
The growth in GDP topped the median estimate of 3.2 percentin a Bloomberg survey of economists and eased concern that analmost eight-month rally in equities outpaced the prospects forrecovery. U.S. stocks extended a global slump yesterday as anunexpected decline in new-home sales exacerbated those concerns.The S&P 500 has surged 55 percent from a 12-year low on March 9,yet slipped 4.3 percent from this year’s high on Oct. 19.
‘More Interest’
“GDP numbers were good and will stimulate more investorinterest in stocks,” said Randy Bateman, who oversees $13billion as chief investment officer at Huntington Asset Advisorsin Columbus, Ohio. “We can’t declare victory yet. Maybe it wasmore pronounced because of the success of cash-for-clunkersprogram. I believe we are not going to double dip, but maybewe’ll see a lesser number in the fourth quarter.”
The return to growth also fueled speculation that theFederal Reserve will begin to discuss lifting its benchmarkinterest rate from a record low range near 0 percent and furtherunwind other programs meant to stimulate the economy.
European Central Bank council member Axel Weber signaledthe bank may start to withdraw its emergency stimulus measuresnext year. The Fed has already announced a phase-out of some ofits programs and will complete its $300 billion Treasurypurchase program today. Norway and Australia have started toraise interest rates.
‘Tug-of-War’
“It’s a tug-of-war,” said Michael Binger, a Minneapolis-based fund manager at Thrivent Asset Management, which overseesabout $60 billion. “We’ve had a stronger-than-expected GDPnumber, decent housing figures and corporations are running moreefficiently. But I don’t see the government reversing thestimulus measures or the Fed changing language or indicatinghigher interest rates any time soon. The unemployment rate isstill very high.”
Motorola gained 9.2 percent to $8.69. The biggest U.S.mobile-phone maker reported third-quarter profit excluding somecosts of 2 cents, exceeding the average estimate for a breakevenquarter in a Bloomberg survey. Motorola cut jobs and productioncosts to offset slumping handset sales.
Procter & Gamble added 4.5 percent to $59.80. The world’slargest consumer-products company reported first-quarter profitthat topped the average analyst projection after price increaseshelped offset volume declines. Procter & Gamble also raised itsfull-year forecast for organic sales growth.
Earnings Surprises
Kellogg rose 1.6 percent to $50.93. The largest U.S. makerof breakfast cereal said it had third-quarter profit of 94 centsa share. The company was forecast by analysts to earn 85 cents,based on the average estimate from a Bloomberg survey.
Akamai Technologies Inc. had the biggest gain in the S&P500, climbing 12 percent to $22.58. The provider of softwarethat makes Web sites load faster said it expects sales of atleast $217 million in the fourth quarter. That exceeded theaverage estimate of $212.1 million from analysts in a Bloombergsurvey.
Symantec Corp. jumped 10 percent to $17.32. The biggestmaker of security software reported second-quarter profit thattopped analysts’ estimates after winning back customers fromcompetitors and adding new business users.
Profit Analysis
Earnings-per-share have topped estimates at 83 percent ofthe companies in the S&P 500 that posted third-quarter resultsso far, which would be a record proportion for a full quarteraccording to Bloomberg data going back to 1993. Still, profitshave decreased 23 percent on average for the 292 companies thatreported since Oct. 7.
U.S. stocks also gained after the number of Americanscollecting unemployment insurance fell more than forecast to thelowest level in seven months. The number of people receivingjobless benefits declined by 148,000 to 5.8 million in the weekended Oct. 17, the lowest since March 21 and biggest weekly dropsince July, Labor Department figures showed.
Indexes of raw-material producers and energy companies roseat least 1 percent as crude oil, gold and industrial metalsgained after the GDP data.
Crude oil for December delivery gained as much as 2.3percent to $79.01 a barrel. Gold rebounded from a three-weeklow, while copper climbed for the first time this week.Commodities prices also rose after the dollar declined 0.5percent against an index of six major currencies.
Newmont Gains
Newmont Mining added 2.8 percent to $42.67. The largestU.S. gold producer reported third-quarter profit of 79 cents ashare on higher bullion prices and lower production costs. Theresults topped the 55-cent per-share average estimate of 17analysts.
Exxon Mobil Corp. had the biggest drop in the Dow average,falling 2.2 percent to $72.23. The largest U.S. company reportedthird-quarter net income of 98 cents a share, 4 cents lower thanthe average of 15 analyst estimates compiled by Bloomberg.Demand slumped for fuels to run cars, trucks, factories andairplanes.
First Solar Inc. slumped 18 percent to $124.68. The world’slargest maker of thin-film solar power modules reported sales of$480.9 million in the third quarter, trailing the averageanalyst estimate by 9.3 percent, according to Bloomberg data.
The rally in global stocks has failed to convince investorsand analysts that it’s time to take on more risk or dispel theirconcerns about U.S. economic policies and its banking system.
Bullishness Subsides
Only 31 percent of respondents to a poll of investors andanalysts who are Bloomberg subscribers in the U.S., Europe andAsia see investment opportunities, down from 35 percent in theprevious survey in July. Almost 40 percent in the latestquarterly survey, the Bloomberg Global Poll, say they are stillhunkering down. U.S. investors are even more cautious, with morethan 50 percent saying they are in a defensive crouch.
The U.S. economy faces “serious bumps” ahead that arelikely to slow the pace of growth, Nobel prize-winning economistJoseph Stiglitz said. The world’s largest economy won’t beexpanding quickly enough to reduce unemployment, Stiglitz told apress conference in Beijing today.
The S&P 500 closed below its average level over the past 50days for the first time since July yesterday, indicating thebenchmark for U.S. stocks may extend its retreat from a one-yearhigh. The index fell almost 2 percent to 1,042.63 yesterday, 0.7percent below its 50-day moving average of 1,050.282
“A close below the 50-day moving average is certainly anegative sign,” said John Murphy, chief technical analyst atRedmond, Washington-based StockCharts.com. “If it’s broken, itsimply indicates the market is going into somewhat of a deepercorrection.”
To contact the reporter on this story:Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: October 29, 2009 10:40 EDTSource: Bloomberg
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